Discussion of case studies
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...... - average cash inflow in the 4th year of 99 potential sequels is $21.6 million
- discount rate 12% (d)
| |avg CI (4) |- |avg CO (3) | |21.6 |
The one year return for this option is 0.72<1, meaning that the option is out of the money
Despite being one of the most common option valuations, DCF is not perfect. It has been several years since experts have observed a gap between DCF valuation and market prices and alternatives to this method have been developed. One of these alternatives called ROA (the real options approach), whose popularity has increased due to the fact that NPV is properly estimated (Ochoa, 2007). DCF is trying to estimate the assets intrinsic value, which requires a large amount of information for the valuation to be accurate. Moreover, the information can be manipulated by the valuator and the outcome of the valuation can vary a lot......
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